Taking Stock / I Believe Her

"Dialog that critical, that angry, that we've been seeing in recent days goes far beyond cottage cheese. It took me two days to snap back and understand what people were telling us. Something is wrong at the systemic level. It goes beyond Strauss, beyond cottage cheese and beyond coffee." (Ofra Strauss, chairwoman of the food manufacturer Strauss Group, yesterday ). You're right, Ofra. This is way beyond cottage cheese.

A year before the financial crisis, when the credit and real-estate bubble were still forming, Citigroup chief executive Charles "Chuck" Prince granted an interview to the Financial Times while visiting Japan. The reporter asked if he wasn't worried that a crisis was taking shape. Instead of saying that everything was hunky-dory, Prince made a surprising answer that has gone into the annals of business world history: "As long as the music is playing, you've got to get up and dance."

strauss - Yossi Zamir  - June 21 2011
Yossi Zamir

Or: Even if I, the manager of a financial behemoth, think something's wrong and that all will end in tears, as long as everybody's dancing on, I have to dance too. If not, I'm out of the game.

The financial crisis that erupted about a year later proved, if anybody still needed proof, that business leaders will always dance on until meltdown, until their robbery of the public screams to the skies, until the point of social and economic collapse. That is human nature. Somebody has to rein them in: the regulator, the sovereign. They can't do it alone.

Wanted: An adult

Just as the investment bank managers on Wall Street needed a regulator to take away their punch bowl, the Israeli economy needs the government to come and say: No more. You acquired, you took control, you fixed prices, you trampled. Now we're changing the rules. We are protecting not only the public. We are protecting you from yourselves.

Ofra Strauss' statement yesterday could be taken in one of two ways: Either she was reading a text designed to deflect fire, saying, "This is bigger than Strauss, or me." Or, we could believe that she really thinks it isn't her job, or within her capacity, to contend with the public tsunami of fury about the high prices and scanty competition in the Israeli economy.

I choose to believe her. This is bigger than cottage cheese. It is bigger than her. The solution to the structure of the Israeli economy does not lie with Ofra Strauss or with Tnuva chairwoman Zehavit Cohen.

Their job is simpler: When the government supplies a solution to the problems of high economic concentration and low competition, they should work with the government, not do the usual - fight tooth and claw, hire armies of economists, lawyers, lobbyists. They should not "buy" journalists. They should not set out to crush everybody in their path to building up yet more wealth.

The structure of Israel's economy or capital market isn't Ofra Strauss' fault. For years, her father, Michael, and other top people in the food industry took care not to compete with each other, to divvy up the markets on the QT, to avoid stepping on each other's turf.

She isn't to blame: The regulators who enabled the food market to take that form, who enabled the concentrated structures in retail, distribution, logistics - they are to blame. And we are to blame for sitting quietly for so many years and only waking up and squealing as the piggishness and brutality reached dangerous heights.

Ofra Strauss cannot be blamed for the formation of a club, consisting of 10 families and 100 hired managers, 10 lawyers and three publicists, joined together in preserving the uncompetitive status quo.

It isn't her fault that economic concentration and the absence of competition created a growing echelon of managers who get paid millions of dollars a year just to press the government and regulator in order to stymie competition, or any regulation that would benefit the consumer. These managers hide behind the thousands of true managers, the people whose successes are the fruit of competition, innovation, teamwork and leadership.

Ofra Strauss is not to blame that the Maala organization for corporate social responsibility that she heads is ignoring the truly important things: The competitiveness of the companies; the freedom they give their customers; how they handle relations with customers, suppliers and employees; how they pay tax and treat the regulator and the law. Do they do anything "as long as it's legal" or they can get an expert opinion that it's legal? Or do they show true social responsibility toward society at large?

Given the way things are, if Maala chose those as criteria for choosing the outstanding companies, most of the big companies would abandon it.

Time to change everything

Here is a secret that nobody will tell you, though everybody knows it. Even if the food manufacturers forgo a quarter or half of their profits, it won't move food prices much.

That's because after years of concentrated economic structures, the business sector is inefficient. Productivity is low and innovation is scarce.

Lowering product prices in Israel and improving services will require a long-term structural revolution in the economy, the capital market, the whole manufacturing chain, in marketing, logistics and management.

The public anger is focusing on prices of food and cellular services. People haven't grasped that the absence of competition and economic concentration will levy far higher prices down the line: They suffocate the business sector, distort the allocation of resources, hurt small businesses and are diminishing our pension savings.

Ofra Strauss isn't to blame because nobody told her - or Zehavit Cohen, or the other people leading the big companies - that the bastards changed the rules. It would be legitimate, from her perspective, and from the perspective of many others, to hope the storm in the tub of cottage cheese would blow over quickly. That some military flare-up or "A Star is Born" finale would distract everyone, and that the cows they milk - otherwise known as "the Israeli public" - will go back to chewing their cud, and obediently trek into the milking barn every morn and eve.